Impressive rebound for techs

Impressive rebound for techs

Nasdaq only marginally lower; Dow slips

NEW YORK (CBS.MW) – The Nasdaq ended marginally lower Monday in its third straight day of losses. But the tech-packed index staged an amazing comeback around midday after suffering triple-digit losses early in the session as bargain hunters emerged to scoop up struggling shares.

“Without volume to accompany it, the morning sell-off didn’t seem as heavy, even with triple-digit losses,” said Ned Collins, head of trading at Daiwa Securities.

“I don’t think Monday’s activity means much, though. We need to see how the market fares when all the players are back Tuesday,” Collins added. “We need time to repair [this damage.] September and October have historically been hard months for stocks.”

While Collins sees more downside to the market – he thinks more nervous players need to be shaken out – he also believes the year will end on an upswing. The demand side of the economy is still strong, he notes, as evidenced by recent economic data.

Inside the tech sector, Internet, networking, computer hardware and software shares paced the Nasdaq’s rebound while the semis fumbled for a third session in a row. Within the Nets, business-to-business shares were on a roll.

The broad market, meanwhile, saw the largest losses in the drug, financial and airline sectors while retail, chemical, utility, oil and oil service companies gained decent ground. The latter were buttressed by the $1.00 gain in November crude futures to $31.86.

The Dow Jones Industrials Average ($DJ) was off 28.11 points, or 0.3 percent, to 10,568.43.

Moving on the downside were shares of AT&T, American Express, Boeing, Intel, Microsoft and United Technologies. Keeping the Dow’s losses in check were gains in shares of Alcoa, Philip Morris, IBM, Hewlett-Packard, Exxon Mobil and Eastman Kodak.

The Nasdaq Composite ($COMPQ) erased 5.45 points, or 0.2 percent, to 3,355.56 after falling as much as 128 points at its nadir on Monday. The Nasdaq 100 Index ($NDX), meanwhile, added 6.96 points, or 0.2 percent, to 3,318.90.

“Over the past weeks we’ve been in pre-announcement purgatory,” remarked David Powers, senior technology analyst at Edward Jones.

“It’ll be hard to move higher before seeing the actual earnings figures from companies,” Powers said. In addition, he believes both oil prices and the euro need to stabilize in order to regain the market’s confidence.

The companies that haven’t pre-announced, Powers continued, need to present solid results and give rosy guidelines for the fourth quarter. The silver lining, he said, is that the market hasn’t yet heard the good news from companies but has been dwelling on the bad.

The Standard & Poor’s 500 Index ($SPX) subtracted 0.5 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks shed 0.5 percent.

Volume was light at 719 million on the NYSE and at 1.42 billion on the Nasdaq Stock Market. Market breadth was again negative, with decliners leading advancers by 16 to 12 on the NYSE and by 24 to 15 on the Nasdaq.

Separately, Trim Tabs said U.S. equity funds saw inflows of $8.7 billion in the three days ended Oct. 5 — with the bulk of the inflows taking place on Thursday. Dissecting those inflows, aggressive growth funds took in $3.1 billion while growth and income funds saw inflows of $2.4 billion.

Trim Tabs notes that many new offerings are in the pipeline and believes the potential overhang is one reason the stock market hasn’t been able to get out of its own way. While the expected wave of issuance, coupled with unrelenting pressure from year-end tax selling by mutual funds, will weigh down the market in the short-term, Trim Tabs expects the tax selling to slow by the end of the week and remove some pressure.

Earnings watch

The market will likely receive a healthy dose of both reality and clarity over the next two weeks as the third-quarter earnings season heats up dramatically, according to Brian Belski, fundamental market strategist at US Bancorp Piper Jaffray.

While several high growth areas are experiencing slower growth rates, Belski said it has more to do with the normal maturation process that every company or economy goes through.

“Almost everyone has decided that the third-quarter earnings season will be bad. But we find it interesting that areas like technology and telecom have not displayed the type of drastic downward earnings revisions that one may think considering the beating they have received in recent weeks,” Belski said.

With many analysts having become very conservative over the past months, the magnitude and frequency of upward surprises may catch people off guard, he concluded.

This week will see the third-quarter earnings season begin in earnest. Three Dow components are on tap to unleash their quarterly results — International Paper, General Motors and General Electric. As of Friday, the number of negative pre-announcements stood at 351, up 25 percent from the same time last year, according to First Call. Expectations for third-quarter growth in S&P 500 companies now stand at 15.9 percent versus the 18.8 percent growth rate expected on July 1, the earnings compiler added.

Sector movers

Chip stocks attempted to claw their way back into positive territory but sellers had the better, with the Philly Semiconductor Index ($SOX) off 1.7 percent following a 6.1 percent fall last week. Among the chip stocks reporting this week are Motorola, Advanced Micro Devices, PMC Sierra, KLA-Tencor and Lam Research. The downside movers within this group included PMC-Sierra (PMCS), off $9 to $190.06, and Motorola (MOT), down 75 cents to $27.

Powers said Motorola’s earnings this week will be key as the company’s a proxy for both the wireless and chip sectors – two areas of the market that have been under significant pressure of late.

Among others in the group, Advanced Micro Devices (AMD) rose 38 cents to $22.38 while bellwether Intel (INTC) fell 88 cents to $39.06.

Meanwhile, Dataquest, a unit of Gartner Group, said the worldwide semiconductor industry in on track to post revenue in excess of $231.6 billion in 2000 – a 37-percent increase over 1999’s revenue. Every major component category is reaching double-digit growth this year, Dataquest added, with the memory segment witnessing the most rapid rate of growth.

Net stocks, under the gun last week with a 12-percet loss in the Goldman Sachs Internet Index ($GIN), saw a modest improvement on Monday. Merrill Lynch’s Internet Holdrs (HHH) rose 1.1 percent with Priceline.com (PCLN) leading the advance, tacking on 17 percent to $6.50. The stock has fallen over 70 percent over the past couple of weeks. Yahoo (YHOO) added 5.5 percent to $85.75. The Net behemoth will report third-quarter earnings on Tuesday, seen at 12 cents a share, per First Call. Within the Net group, B2B stocks were on a roll, led by VerticalNet (VERT), up 18.1 percent to $25.69 following a grueling sell-off on Friday, and Internet Capital Group (ICGE), up 27 percent to $14.25. Merrill Lynch’s B2B Holdrs (BHH) climbed 7.5 percent.

In a research note, CS First Boston said the recent sell-off in the B2B group is overdone and suggests using this as an opportunity to accumulate the large-cap leaders in the group. Stocks mentioned included Ariba, Commerce One, PurchasePro, FreeMarkets and VerticalNet. First Boston notes that over 20 percent of IT spending will be dedicated to B2B activities for the next year.

Electronic Data Systems climbed $4, or 9.8 percent, to $44.63. The company (EDS) was awarded an Intranet contract from the Navy Marine Corps valued at $6.9 billion over an eight-year period. The company enjoyed upgrades from both Merrill Lynch and CS First Boston.

Among EDS’ competitors, Computer Sciences (CSC) erased $6.81, or 8.8 percent, to $70.25, General Dynamics (GD) edged down 69 cents to $59.75 while IBM (IBM) added $1.94 to $117.94.

The S&P Retail Index ($RLX) recovered a touch, adding 0.3 percent after falling 3.5 percent last week. But profit warnings continued to trickle in. Williams-Sonoma (WSM) said Monday that third-quarter earnings will come in at 4 to 6 cents a share, much less than the First Call estimate of 18 cents a share. The shortfall was blamed on lower-than-expected sales from catalogs, higher advertising costs and depressed margins. The stock lost $7.88 to $19 and was slapped with downgrades from Merrill, Bear Stearns, Prudential Securities, Deutsche Banc Alex. Brown and Stephens Inc.

See for post-market trading activity.

Economic focus

The bond market was closed in observance of the Columbus Day Holiday. On Friday, the 10-year Treasury note ended up 14/32 to yield ($TNX) 5.80 percent while the 30-year bond put on 24/32 to close at a yield ($TYX) of 5.845 percent.

On the economic front, the week’s highlights include the release of the September producer price index and retail sales report, both slated to hit the market on Friday. View Economic Preview, economic calendar and forecasts and historical economic data.

In the currency arena, dollar/yen lost 0.1 percent to 108.80 while euro/dollar edged down 0.1 percent to 0.8682.